CLA Livestream Series: PPP Forgiveness - Part Three

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  • 5/26/2020
  • Virtual

Our CLA professionals will be providing additional updates regarding the Paycheck Protection Program (PPP) forgiveness loan.


In case you missed it:


Questions and Answers:

Our payroll is semi-monthly, so 4 payrolls cover more than 8 weeks. Do we need to prorate to 8 weeks? Would we prorate our final payroll, and elect the alternative start date?

You would prorate your final week and can also elect the alternative start for administrative convenience.

Our PPP 8 weeks period is 4/14/20 to 6/9/20 so does the last week of June payroll have to be deducted?

Prorate costs incurred through June 9 and paid on the next payroll.

Medical insurance premiums are charged on a monthly basis. Do they have to be prorated over the 56 days?

That would be a reasonable assumption based on how the IFR allows for "non-payroll" expenses paid during the period and incurred and paid in the next billing cycle - the last payment likely would be prorated.

Does payroll need to be incurred and paid in the 8 week period or can the last one be incurred but paid the week following the end of the 8 week period?

If the last one is incurred and paid in the following payroll that would be ok.

We have a limited re-opening before our 8-week covered period is over. Can we claim costs after we re-open?

Yes, if you incur qualifying costs you can.

Does the first payroll of the covered period need to be incurred within the covered period?

The payroll during the covered period can be started to be tracked on the first day of the covered period or you can start your 8 weeks on the next pay period for admin convenience.

Our PPP period is 4/17-6/11. Can we use loan funds for rent 4/17-7/30 even though April rent was paid on April 1 before we received our PPP loan?

You can take the rent paid during the covered period and then prorate the rent incurred during the covered period and paid on or before the next billing date that is after the covered period.

If we are just now setting up a brand new 401(k) plan for EEs, can PPP funds be used for this?

Yes, if funded in the 8 weeks.

Given what came out on the 22nd, it seems like we will most likely be including more than just 56 days in the payroll forgiveness.

There are timing rules for administrative convenience, but you just get the 56 days.

Two of our leases are month-to-month and we don't have a formal lease. We do receive invoices however. Can we still use for forgiveness?

The invoices good support - consider documenting the lease with your attorney.

I am a self-employed Schedule C individual that received a loan of $20,800 (limited by 2019 Schedule C cap of $100,000). If forgiveness is 2 months, then by definition 2/12 X $20,800 is ~$3,400 not forgiven. Correct?


One of our utility companies is behind in billing and we are paying March billing in May. Is that ok since it wasn't incurred in the 8 week period?

The utilities will be the utilities paid and then the last payment is related to incurred during the period, but prorated for payment on the next billing date.

We recently hired an individual on a temporary to hire basis. Can we include this in our payroll costs?

As long as they are a W-2 employee.

The loan application was based on a monthly payroll calculation (12 months = 24 pay periods). However, the loan forgiveness is based on an 8 week period (12 months = 26 pay periods). Due to the difference in calculations, there is a shortfall when applying for forgiveness. Is the intent to ensure that 100% forgiveness may not be reached?

There are rules to allow for the 56 days. 25% of your forgiveness can be non-payroll and the rest may not be forgivable.

I heard guidance came out that benefits cannot be included in the over $100K for self-employed. This was not known at the time of the application, so we'll just have a higher permanent loan?

A portion will convert to a loan or not be forgiven.

Will you please confirm health insurance for independent contractors cannot be forgiven? Also, will income during the 8-week period affect forgiveness?

Correct - health insurance and benefits affect SE income and come out of these amounts.  Therefore, those are part of the overall cap for self-employed individuals.  The income earned during your 8 weeks does not impact forgiveness.

Do we still need to deduct employer/employee withholding/SS/med taxes?

The employee portion of FICA is included in the forgiveness calculation.

Take an organization whose loan was funded on April 29 paid its rent for May and due May 1 on April 27. Will it be able to include its May rent in its forgiveness request?

You can pick up rents paid in the covered period as well as costs incurred during the covered period and paid on or before the next regular billing cycle.

Does an employee have to have exactly the same salary as last year?

No, it does not. You will compare their salary during the 8 weeks to cover paid salary – it will need to be at least 25% of the pre-COVID-19 salary during the reference period to not affect forgiveness.

Is the owner's comp capped at $100K or 8/52 of 2019 comp?

Owner’s compensation is capped at the lesser of $100,000 prorated for 8 weeks or 8/52 of the 2019 compensation. Take the lower of the two.

Per SBA site " least 75% of the forgiven amount must be used for payroll). Has this been amended or should we be targeting the "gateway" concept?

That is still the gateway concept.You will divide the payroll costs during the 8 weeks by .75 to determine the total forgivable amount.

Will income for independent contractors affect their forgiveness?

No, it does not affect the forgiveness calculation.

Where can I find the recent IFR?

Go to as there were two issued on May 22.

Question on utilities/rent...can we only include 56 days of these costs?

You may be able to get in 3 payments - you may have 2 paid during the 8 weeks and then a portion incurred and paid after - you pro-rate that last amount.

I’m a sole proprietor but with employees, is owner(s) kept out of FTE?

You could use your W-2 employees.

The IFR says, "payroll costs paid or incurred during the eight consecutive week (56 days) covered period are eligible for forgiveness." I understand I can change to the alternative covered per?

Yes, you get 56 days either on date of origination or beginning on alternative date.

Has the deadline for forgiveness application been determined?

No deadline.

I have heard there is a proposal to forgive all loans under $100K - have you heard anything about this?

There are a lot of proposals out there, I have not personally seen that one.

Can you post the link to the most recent IFR?

House bill proposing -16 weeks in addition and Senate 8 weeks? Do I have that right?

The House and Senate each have bills going and while we don't know where we will land, each does propose extending forgiveness.

I understand the last payroll of the period needs to be pro-rated?

Yes, prorate it for the days remaining in your 8 weeks. It has to be paid in the next pay period.

Our organization is self-insured. We have set a premium for staff, so can we use our "premium" or do we have to use actual outlays?

Use the monthly amount remitted to the company - there is an FAQ that covers this.

Do wage reduction rules apply to variable pay for sales employees?

It is silent on variable pay, but since it talks about an annualized salary in the 8 weeks compared to a cover period, that is a reasonable assumption.

If you use the Alternative Payroll Period it seems that you do not need to prorate the final payroll, correct?

If there is no timing difference, you wouldn't need to prorate.

Does the $100K cap include bonuses or just base pay?

Base and bonus

Can we include 2019 Safe Harbor contributions paid during the forgiveness period in the forgiveness calculation as payroll costs?

The concern here is that the costs weren't incurred.

What about commission reduction due to less sales?

That may hurt you - you may have to look at a bonus if you don't want to impact forgiveness and balance any employee compensation decisions for forgiveness maximization with good decisions for the business.

Does wage reduction apply to employees you laid off during covered period, or only employees whose wage you reduced?

The pay rate and the FTE rate are counted separately so as not to double-penalize employers.

If an employee wants to cash out a week of their vacation during the period, can that be counted towards the payroll of PPP (as long as under the $100k annualized)?

W-2 wages count

What time period is the $15,385 related to - 8 weeks?


If the hourly rate of an employee stayed the same, but their hours were reduced, does this count as a salary reduction or does it just impact the FTE count?

Just the FTE count.

Does the hourly wage reduction calculation include OT premium at 1.5?

It will likely just be the base hourly wage.

How do commissions play in? If FTE and salary is the same, but sales have dropped so commissions are lower, do we ignore the commissions and only compare the actual salary?

The guidance only addresses pro-rated salaries during the covered period and the reference period.

What does "pay period" mean? We pay in arrears, so the actual pay date is 19 days after the beginning of the 2 week pay period.

Your pay period is the time worked and the pay date is after that.

If our regular hours are 35 per week, are we calculating FTEs based on 35 or 40 hours?

Those employees would be full time as we interpret it. While the calculation counts as 40 - if you are consistent across the covered period and reference period you will likely get to the same answer.

Are your exempt employees considered 1 FTE even if they do not currently work 40 hours per week, but are still getting their full pay each pay period?


Are there special rules to be applied to schools where our salaried staff are paid over 12 months for the 9 months that they work during the school year?

There are seasonal employer rules.

Is the reference base period the actual payroll dates or can you use the start of a payroll after the listed date?

Actual dates

Is an owner employee of an S-Corp subject to the $15K cap for the 8 week period?

There is a $15K cap that is also limited to the prior year 2019 wages prorated over 8 weeks. Take the lesser of the two.

For a self-employed individual (with a Schedule C or Schedule F), do they need to take a draw or will 8/52 of the 2019 net profit automatically be forgiven as long as it is under the 100,000 limit?

The forgiveness is automatic so long as it is under the 100,000 limit.

Majority of staff only works 10 do we have equal EE count on June 30 if only limited staff for camps are working?

There are special rules for seasonal employers.

How does sale of the business shortly after the forgivable period affect forgiveness?

After the forgivable period there are no employment or wage requirements - just work out the timing of the forgiveness in the sale considerations and any indemnifications/holdbacks that should be considered.

If testing periods for FTEs testing don't follow pay periods, do we need to create a schedule of some sort to support our calculations?

Yes, that is a great idea.

Do insurance costs include only health, or can we include dental, life, disability?

No disability or life insurance allowed.

Our overseas missionaries have returned to the US during our 8-week period. Can their payroll now be included?

If you are paying them, that would be reasonable.

On the forgiveness application it asks if we applied for EIDL loan. How does affect the forgiveness? We did get the EIDL loan.

You back out the initial grant of up to $10K from the EIDL loan.

Loan was disbursed into our account on 4/16. Our next payroll date was on 4/17 that covered the pay period of 3/27-4/10. Is 4/17 our Alt Pay Period or the next Pay period that covers the work after 4/17?

Start with your next pay period - when it begins - either 4/17 or 4/18.

It seems like the cap for the owner could be less than $100K annualized since the cap is $15,385 for the 8 weeks.

It could if their pay was less than $100K in 2019.

Do we have to pay income tax on the PPP and SBA 10,000 grant?

The forgiveness is not taxed. The IRS has said the corresponding expenses are not deducted. This could be changed with a future law to allow deductibility of the expenses. Stay tuned.

In calculating FTE, must you include overtime hours in the initial period?


Are the salary costs you can ask for forgiveness for only for the employees you would have laid off if you hadn't received the loan? Or all the salaries you paid during the 8 week period?

All of the salaries.

Using the alternative, at the end, payroll costs are eligible for forgiveness as long as they are paid on or before the first regular payroll date. What is the first regular payroll date mean?

Before the next payroll period, after the forgiveness period ends.

If it hasn't been addressed, can we ask about the forgivable net profit paid to partners in an S-Corp?

For S corporations use W-2 wages paid to the owner/employee.

We have an employee who makes over $100K was scheduled for a bonus that falls in the 8 week period which would put them over the $15K for the 8 weeks. How do we handle the overage?

The amount over the $15K is likely not deductible.

For paid and incurred, do we need to prorate in the front end as well as the back end or just the back end? Also, what about costs incurred but only paid annually.

The example in the IFR show the first two bills paid and pro-rate the end of this.

Does time period start on loan date or funding date?

The funding date

How will the Necessity Certification be reviewed?

This is addressed in the FAQs - if your loan is under $2M it is deemed to be made in good faith.

Would company-paid Life & Disability Insurance payments qualify for forgiveness?

Nothing in the guidance allows it to be included.

I have an employee who is being deployed for The National Guard during my covered period. Does that count against us for our FTE?

There are some special rules for voluntary resignations by employees.

Do the following count for FTE: 1) retirements, 2) resignations, 2) termination for cause, 4) out for medical?

Voluntary resignations and termination for cause are ok as well as terminations for cause.

If your business is seasonal and the Jan to Feb 15 payroll is higher than the covered period, is there any relief?

Yes, there are seasonal rules for seasonal employers.

Where can we find information on the PPP calculator tool?

What you missed:

Rohen: Hello CLA family, friends, colleagues, and community partners. Welcome back to our livestream and Part 3 of our forgiveness application discussion. Friday night, we received some new IFRs (Interim Final Rules) and additional information that we’re going to cover today. The new IFRs consist of 26 pages that build upon what we learned from the Loan Forgiveness Application and instructions, which cleared up several items, and resulted in several questions, and now some have been answered. A second set of IFRs, also released on May 22 and consisting of 19 pages, provide guidance with respect to the SBA loan review process as well as borrower and lender responsibilities associated therewith. Rick, Todd, and Jack are back with me today to discuss what we know now and what we’re still waiting to learn. Welcome back, gentlemen!

Jack, I’d like to start with you to discuss the IFR related to forgiveness. What did we learn from our review of that document?

Rybicki: As you mentioned Jen, much of it was confirming what we saw in the loan forgiveness application that was released the week prior. There were a few nuggets that are worth mentioning though:

  • The definition of payroll costs elaborated a bit on tips paid by customers to employees. They included the ability to use a reasonable, good-faith employer estimate of tips if employers lack records.
  • We get lots of questions about the June 30 date for allowable uses. The IFR confirms that doesn’t affect forgiveness by using many examples through July.
  • Clarification on bonuses and hazard pay, that those amounts are includable (subject to $15,385 limitation)
  • Clarification that for rent and utilities paid or incurred language contemplates that the borrower may have more than two months of expenses. Example covers two payments during the covered period plus accrual of prorata share on last bill incurred during the covered period and paid in the normal cycle after the covered period. This does not include prepayments in example and does not provide same example for payroll.
  • OK to pay furloughed employees
  • General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.

Rohen: One question from the chat — is the owner cap for insurance also for C Corporations or just for S Corporations and partnerships?

Rybicki: We think it has to do specifically with those individuals that are not going through W-2 wages. Active general partners or Schedule C’s is where it is limited. If you are compensated through a S Corporation or C Corporation then it would be includable.

Rohen: Rick, during last week’s livestreams, we talked pretty high level about the forgiveness application. Can we dive a little deeper into a couple of the calculations that generate the most questions? How exactly does the wage reduction work?

Krueger: The CARES Act contains a provision that, in order to maximize forgiveness, basically requires wages to be at least 75% of the average wage during quarter 1 2020. Let’s walk through that in a bit more detail though.

  • Does it apply to all employees?
    • Only employees who worked during the covered period.
    • Excludes anyone who made over $100,000 during 2019 (and anyone who had a single pay period during 2019 that when annualized exceeds $100,000).
  • Do all wage reductions hurt forgiveness?
    • First 25% reduction has no impact.
    • Exception for wage reinstatements if reduced between 2/15 and 4/26 and reinstated by June 30.
  • Do reductions in hours hurt forgiveness?
    • Not for the wage reduction test. It may impact the FTE test, but you don’t get hit twice since the wage reduction test is based on averages rather than total wages.
  • How does the calculation work?
    • Determine the average salary or hourly wage in quarter 1 and compare to average during 8-week period
    • For hourly employees, any decrease in excess of 25% is multiplied by 8 weeks times the average weekly hours during quarter 1. (Please note: It’s the hours from quarter 1, rather than the hours from covered period)
    • For salaried employees, it’s essentially the same but you skip the hours since you’re using weekly salary.
  • The result of the calculation reduces dollar for dollar from allowable costs.
  • The reduction is applied to the full 8-week period, regardless of whether or not the employee is employed during the entire covered period.
  • Safe harbor if wage reduction is eliminated before 6/30/2020. Unlike the FTE safe harbor test that we will discuss later, this is measured at the individual employee level.

Jen: So that helps with the wage reduction test, but there’s also another big reduction test in the CARES Act for FTE (Full-time Employees). Can you talk to us about that one too?

Krueger: You’re right, the other big test that will impact borrowers is the amount of FTEs they have during the covered period versus a reference period.

  • How to count FTEs
    • Option 1: Regular - divided by 40 / week subject to a max of 1 (i.e., 45 hours = 1 FTE, 30 hours = .75 FTE)
    • Option 2: Simplified - 40 or more hours = 1 FTE or Less than 40 hours = 0.5 FTE
    • Need to use consistently
  • Do you need to count FTEs?
    • If you maintained or increased the number of employees and the average paid hours of employees from 1/1/20 to the end of covered period, you can skip most of this.
  • Main formula
    • Allowable costs less any wage reduction times FTEs during covered period divided by FTEs during reference period.
    • For reference period, you can choose the lower of 2/15/19 - 6/30/19 or 1/1/20 -2/29/20. (An additional option if you were considered a seasonal employer).
    • If reference period was higher than the covered period, then it would reduce the allowable costs potentially eligible for forgiveness.
  • What else impacts FTEs? No penalty if during the covered period.
    • FTEs who were terminated between 2/15 through 4/26, offered to rehire in writing for same wages/hours, but they rejected the offer.
    • FTEs fired for cause
    • FTEs voluntarily resigned o FTEs voluntarily requested and received a reduction of hours
    • Include only if position wasn’t filled by a new employee
  • FTE reduction safe harbor applies if:
    • Reduced FTEs between 2/15 and 4/26 and the FTEs as of June 30 are at least as high as 2/15.

Rohen: We have a question from the chat — can payroll costs for employees that are non U.S. citizens be covered?

Krueger: No, those would not be included. We are only talking about employees whose principal place of residence is the United States.

Rohen: We have another question from chat — our organization is self-insured and we have a set premium for staff, can we use our premium or do we have to use the actual outlays?

Rybicki: You can use what you actually paid for that period.

Krueger: In addition, the application goes into detail defining if you have a self-insured plan and what to include and people have asked if you need to subtract employee contributions and you do have to subtract these out and the application states this.

Rohen: One more question — are there special rules to be applied to schools where salaried staff are paid over 12 months for the 9 months they worked during the school year, is there anything that addresses that?

Krueger: There are some rules for seasonal employers, it’s not well-defined and what constitutes a seasonal employer but there is flexibility for seasonal employers both for loan sizing and forgiveness for which period to select.

Rohen: Todd, I want to pull you in to discuss what we might know about the lender side from the second set of IFRs released Friday night. Do you want to give a quick overview?

Sprang: SBA also provides more direction as to the procedures they expect lenders to perform by stating that lenders should confirm receipt of the borrower certifications contained in the loan forgiveness application form and required support for payroll and non-payroll expenses.

Specifically, the lender should confirm the following calculations:

Description Form Line Number(s)
Cash compensation Schedule A 1 and 4
Noncash compensation Schedule A 6, 7 and 8
Compensation to owners Schedule A 9
Business mortgage interest payments 3508 2
Business rent or lease payments 3508 3
Business utility payments 3508 4
Total payroll costs (This determines whether
at least 75% of the potential forgiveness amount
was used for payroll costs.)
3508 10
  • We believe identifying specific line items for recalculation is helpful, however without further guidance we expect many variances in borrower definitions of certain qualifying expenses.
  • We also noted the IFR does not mention line number 5 on Form 3508, the payroll cost reduction amount. 
    • This would imply the lender is not responsible for performing a recalculation of this amount.
    • We believe that’s a positive as that recalculation would be a challenging task.
  • Finally, we noted SBA provides a specific example of their expectations for a lender review of payroll calculations which indicates a minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be considered reasonable, but noting that payroll costs not utilizing documentation from these sources would be more appropriately accompanied by more extensive review of calculations and data.
    • While the example provides helpful insight, it also raises the question of which providers are considered as a “recognized” payroll processor by SBA.
    • Unless additional guidance is provided on this topic, it appears as if a lender would need to develop their own definition of “recognized third-party payroll processor” and create a listing of those processors to consistently, effectively and efficiently apply the correct level of review to the payroll calculations of each applicant.

Rohen: What are the required communications to the borrower at the end of the lender review?

Sprang: The lender must issue a decision to SBA on a loan forgiveness application no later than 60 days after receipt of a complete loan forgiveness application from the borrower. Without an SBA definition of what constitutes a complete application, we currently assume that an application is “complete” on the date a lender receives the last documentation item requested from the borrower.

The lender decision may take the form of:

1. Approval (in whole or in part)
2. Denial*
3. Denial without prejudice* (if directed by SBA) due to a pending SBA review of the loan. In the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its application for loan forgiveness, unless SBA has determined that the borrower is ineligible for a PPP loan.

*When denying a loan forgiveness application, the lender must also notify the borrower in writing that the lender has issued a decision to SBA denying the loan forgiveness application. A borrower then has 30 days to request that SBA review the lender’s decision.

Rohen: Do we know more about SBA review?

Sprang: SBA may review loans of any size and at any time and the IFR outlined the timelines for lender response in the event the SBA initiates a loan review.

According to the IFR, SBA is authorized to review borrower representations and statements for:

1. Borrower eligibility: Whether a borrower is eligible for the loan based on the provisions of the CARES Act, the rules and guidance available at the time of the loan application, and the terms of the borrower’s loan application. If documentation indicates potential borrower ineligibility, then:

  • SBA will require the lender to contact the borrower in writing to request additional information.
  • Any information the lender receives from the borrower will be provided to SBA. 

2. Loan amounts and use of proceeds: Whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act.

3. Loan forgiveness amounts: Whether a borrower is entitled to loan forgiveness in the amount claimed on the borrower’s application.

Rohen: A question from the chat — can the lender charge the borrower for review and or confirmation for internal or outside costs?

Sprang: There is no mention of these costs, the borrower would not bear any costs related to the program.

The IFR addresses the impact on borrowers and lenders if a borrower is deemed ineligible. One impact is the potential claw back of lender processing fees. Our May 22, 2020 blog on the Form 1502 Procedural Notice identifies additional scenarios that could trigger refunds of lender processing fees and potentially jeopardize the loan’s eligibility for a guaranty.

Finally, the IFR acknowledged that a borrower may appeal the SBA conclusion on eligibility and stated that guidance will be released in the future.

Rohen: A few questions to address from the audience — does an employee who receives short term disability count as FTE in the calculation for forgiveness? Same question for someone who is out on maternity leave?

Krueger: FTE’s are calculated based on hours paid. In most cases the insurance is covering short or long-term disability, therefore you wouldn’t count them as paid hours and they wouldn’t go into the FTE calculation as well as the wage reduction test. However, if it is the employer paying for it and they are being counted as paid hours and paid a normal rate that could be included. For a lot of employers it most likely would be excluded from all the different tests.

Rohen: One last question — Jack can you address how is this going to impact merger and acquisition activity?

Rybicki: The SBA has a period for up to six years to look at these loans and if you are acquiring a company that had PPP loan forgiveness now you have contingent liability and you get into questions on if you have to escrow these funds. What if there is a claw back in the future? We do think with this elongated period that is going to be one of the things we see as part of the standard due diligence process and potential reductions in purchase price as a result of this or at least hold backs if there are risks. We do feel there will be an impact on merger and acquisition activity related to this program.

Rohen: A popular question, relates to the forgiveness tool that we mentioned. We’d like to remind you to continue to visit our COVID-19 landing page at for more information on PPP forgiveness as well as other hot topics. You should also take a minute to subscribe to our emails so that we can continue to share up-to-date information with you around the forgiveness tool, including a demo of the tool itself coming soon and how we can continue to support you during this time.

Unfortunately, that’s all we have time for today. Thank you to our guests today, to you for your questions, and to our moderators in the chat for all the support and great information and answers. Thanks for watching, and be well.


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